<PAGE>
1838
BOND DEBENTURE TRADING FUND
------------------------
FIVE RADNOR CORPORATE CENTER,
SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
[LOGO]
Quarterly Report
June 30, 1996
<PAGE>
July 15, 1996
TO THE SHAREHOLDER:
The Fund ended the quarter June 30, 1996 with a Net Asset Value of $20.44 per
share. The Fund's stock price closed the quarter at $20.125 per share, or a 1.5%
discount to N.A.V. The closing Net Asset Value per share represents a 3.3%
decline from $21.14 per share at fiscal year-end March 31, 1996. On June 20,
1996, the Board of Directors declared a dividend of $0.39 per share, payable
August 6, 1996 with receipt of this report.
The bond market continued to be weak in the quarter as economic data pointed to
stronger GDP growth, increasing employment and higher plant utilization. These
factors led to fears of potential inflation and the specter of a Federal Reserve
tightening of monetary conditions adversely affecting bond prices. Among the
more positive economic fundamentals was the lessened Federal budget deficit,
which was all but overlooked by the markets.
The performance of the Fund is compared below to the average of the 19 other
closed-end bond funds with which we have historically compared ourselves:
Total Return-Percentage Change in Net Asset Value
Per Share with All Distributions Reinvested(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
10 Years 5 Years 3 Years 2 Years 1 Year Quarter
to 6/30/96 to 6/30/96 to 6/30/96 to 6/30/96 to 6/30/96 to 6/30/96
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1838 Bond Fund(2) 142.59% 55.66% 15.19% 17.04% 1.21% -1.53%
Average of 19 Other
Closed-End Bond Funds(2) 135.25% 57.95% 18.96% 20.39% 5.85% 0.55%
Salomon Bros. Bond Index(3) 149.82% 60.76% 18.36% 22.78% 4.36% 0.15%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) - This is historical information and should not be construed as indicative
of any likely future performance.
(2) - Source: Lipper Analytical Services Corporation.
(3) - Comprised of long-term AAA and AA corporate bonds; series has been changed
to include mortgage-backed securities.
During the quarter, the Fund's management made some modest shifts in the credit
quality of the portfolio. We eliminated B-rated holdings through the combination
of one sale and an upgrade of another credit. BB-rated holdings increased as a
result of that upgrade and selected purchases of two BB+ rated credits, ADT
Operations and Mark IV Industries, which we believe are underrated and
undervalued. BBB and AAA rated holdings declined modestly while A-rated exposure
increased.
1
<PAGE>
The table below updates the portfolio quality, showing the decreases in the
lowest and highest quality ratings while increasing in the middle-rated
categories:
Percent of Total Investment (Standard & Poor's Ratings)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Treasuries,
Agencies & B and Not
Period Ended AAA Rated AA A BBB BB Lower Rated
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1996 28.2% 0.0% 31.5% 25.5% 14.5% 0.0% 0.3%
March 31, 1996 31.4% 1.2% 26.2% 27.4% 9.6% 3.9% 0.3%
March 31, 1995 34.3% 3.7% 20.5% 34.5% 5.5% 1.3% 0.3%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
At the Fund's Annual Meeting of Shareholders on June 20, 1996, over 76% of
shareholders voted their proxies. Management would like to extend its
appreciation to all those shareholders for their continued support.
Sincerely,
/s/ John H. Donaldson
---------------------
John H. Donaldson
President
2
<PAGE>
SCHEDULE OF NET ASSETS JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Moody's/
Standard &
Poor's Principal
Rating for Amount (000's)
Debt or Number Identified Cost Value
Securities of Shares (Note 2) (Note 1)
---------- -------------- --------------- --------
LONG TERM DEBT SECURITIES (97.73%)
ELECTRIC UTILITIES (12.16%)
<S> <C> <C> <C> <C>
Cleveland Electric Illuminating, 1st Mtge., 9.00%, 07/01/23 Ba2/BB $1,800 $1,662,876 $1,584,000
Commonwealth Edison, 1st Mtge., 9.125%, 10/15/21 .......... Baa2/BBB 2,000 2,062,500 2,160,000
Hydro Quebec, Gtd. Debs., 8.25%, 04/15/26 .................. A2/A+ 1,550 1,475,993 1,606,188
K N Energy Inc., Debs., 8.75%, 10/15/24 ................... A2/A 1,150 1,263,799 1,207,500
Niagara Mohawk Power, 8.75%, 04/01/22 ..................... Ba1/BB 1,000 1,028,220 880,570
Utilicorp United Inc., Senior Notes, 10.50%, 12/01/20 ...... Baa3/BBB 1,500 1,560,938 1,695,000
---------- ----------
9,054,326 9,133,258
---------- ----------
TELEPHONE UTILITIES (1.17%)
U.S. West Communications, Debs., 6.875%, 09/15/33 ......... Aa3/AA- 1,000 896,920 877,500
---------- ----------
FINANCIAL (3.59%)
Chrysler Financial Corp., Notes, 12.75%, 11/01/99 ......... A3/A- 1,000 1,090,125 1,176,250
Leucadia National Corp., Senior Sub. Notes, 10.375%, 06/15/02 Ba1/BBB 550 549,775 585,062
Leucadia National Corp., Senior Notes, 7.75%, 08/15/13 ..... Baa3/BBB+ 1,000 990,000 933,750
---------- ----------
2,629,900 2,695,062
---------- ----------
INDUSTRIAL & MISCELLANEOUS (55.25%)
ADT Operations, Senior Notes, 9.25%, 08/01/03 ............. Ba3/BB+ 500 520,625 518,125
AMR Corp., Debs., 10.00%, 04/15/21 ......................... Baa3/BB+ 2,000 2,148,940 2,363,410
Auburn Hills Trust, Gtd. Exchangeable Ctfs., 12.00%, 05/01/20 A3/A- 1,000 1,000,000 1,445,125
Columbia/HCA Healthcare, Debs., 7.50%, 11/15/95 ............ A3/BBB+ 2,850 2,972,778 2,689,687
Ford Holdings, Gtd. Debs., 9.375%, 03/01/20 ............... A1/A+ 1,000 1,117,790 1,167,500
Ford Motor Co., Debs., 8.875%, 01/15/22 .................... A1/A+ 1,500 1,480,350 1,681,875
Georgia Pacific Corp., Debs., 9.625%, 03/15/22 ............. Baa2/BBB- 1,000 1,059,240 1,078,750
Greater Orlando Aviation Auth., 8.20%, 10/01/12 ........... Aaa/AAA 500 551,875 502,860
Harcourt General Inc., Senior Debs., 8.875%, 06/01/22 ...... Baa1/BBB+ 1,000 1,064,100 1,086,770
Harnischfeger Industries, Inc., Debs., 7.25%, 12/15/25 .... Baa2/BBB 2,000 1,962,952 1,802,500
Mark IV Industries, Inc., Debs., 7.75%, 04/01/06 .......... Ba3/BB+ 500 462,650 461,875
May Department Stores Co., Debs., 10.75%, 06/15/18 ......... A2/A 150 154,385 160,313
Missouri Pacific Railroad, Income Debs., 5.00%, 01/01/45 ... Baa2/A- 1,122 692,960 667,590
News America Holdings Inc., Gtd. Debs., 10.125%, 10/15/12 .. Baa3/BBB 2,050 2,163,503 2,278,062
News America Holdings Inc., Gtd. Debs., 7.90%, 12/01/95 .... Baa3/BBB 1,000 898,540 890,000
North Dakota State Municipal Bond Bank, Water Sys. Rev.,
10.50%, 04/01/14 ........................................ Aaa/AAA 1,000 1,159,780 1,080,000
Owens Corning Fiberglas, Debs., 9.375%, 06/01/12 ........... Baa3/BBB- 1,140 1,157,140 1,259,700
Penn Central Corp., Sub. Notes, 10.625%, 04/15/00 .......... Ba3/B+ 1,000 1,150,640 1,017,500
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 .......... Ba3/B+ 1,500 1,634,965 1,515,000
Pope & Talbot Inc., Debs., 8.375%, 06/01/13 ................ Ba2/BB+ 1,750 1,699,110 1,603,438
Province of Quebec, Debs., 7.50%, 07/15/23 ................ A2/A+ 1,000 978,510 953,750
Rohm & Haas Co., Notes, 9.50%, 04/01/21 .................... A1/A 1,500 1,494,375 1,648,125
Smurfit Capital Funding, Gtd. Debs., 7.50%, 11/20/25 ...... Baa1/A- 2,000 1,990,780 1,857,500
TCI Communications, Inc., Senior Debs., 9.25%, 01/15/23 .... Baa3/BBB- 2,000 1,991,940 1,966,840
TCI Communications, Inc., Senior Debs., 8.75%, 02/15/23 .... Baa3/BBB- 1,000 1,083,180 942,515
Texaco Capital Inc., Debs., 7.50%, 03/01/43 ............... A1/A+ 2,000 1,977,920 1,942,500
Time Warner Inc., Debs., 9.15%, 02/01/23 ................... Ba1/BBB- 2,000 2,050,000 2,080,000
TRW Inc., Notes, 9.375%, 04/15/21 ......................... A2/A 303 320,893 362,464
Union Camp Corp., Debs., 9.25%, 02/01/11 ................... A1/A- 1,500 1,486,305 1,702,500
</TABLE>
See notes to financial statements.
3
<PAGE>
SCHEDULE OF NET ASSETS - continued JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Moody's/
Standard &
Poor's Principal
Rating for Amount (000's)
Debt or Number Identified Cost Value
Securities of Shares (Note 2) (Note 1)
---------- -------------- --------------- --------
<S> <C> <C> <C> <C>
Union Pacific Co., Debs. 8.625%, 05/15/22 ....................... A3/A- $1,000 $1,062,430 $1,037,500
Viacom Inc., Gtd. Senior Notes, 7.75%, 06/01/05 ................. Ba2/BB+ 750 784,973 730,312
Western Atlas Inc., Debs., 8.55%, 06/15/24 ...................... Baa1/A- 939 935,865 987,124
---------- ----------
41,209,494 41,481,210
---------- ----------
MORTGAGE BACKED SECURITIES (8.67%)
CMSI Collateralized Mtge. Oblig., Series 1994-7 A4, 6.25%,
04/25/24 .................................................... Aaa/AAA 1,000 801,477 843,109
FHLMC Collateralized Mtge. Oblig., Series 40-F, 10.00%, 05/15/20. NR/NR 600 660,000 665,908
FNMA Collateralized Mtge. Oblig., Series G-8 E, 9.00%, 04/25/21.. NR/NR 2,000 2,143,750 2,077,915
GNMA Pool #780374, 7.50%, 12/15/23 ............................ NR/NR 989 981,054 978,427
GNMA Pool #417239, 7.00%, 02/15/26 ............................ NR/NR 2,027 2,055,748 1,943,651
---------- ----------
6,642,029 6,509,010
---------- ----------
U.S. GOVERNMENT & AGENCIES (16.89%)
U.S. Treasury Bonds, 10.75%, 08/15/05 ......................... NR/NR 1,600 2,120,750 2,033,200
U.S. Treasury Bonds, 7.875%, 02/15/21 ......................... NR/NR 2,900 2,888,219 3,179,183
U.S. Treasury Bonds, 8.125%, 08/15/21 ......................... NR/NR 1,000 1,016,406 1,126,250
U.S. Treasury Bonds, 6.25%, 08/15/23 .......................... NR/NR 7,000 6,668,586 6,345,290
---------- ----------
12,693,961 12,683,923
---------- ----------
TOTAL LONG TERM DEBT SECURITIES.................................. 73,126,630 73,379,963
---------- ----------
INVESTMENT COMPANIES (0.29%)
High Yield Plus Fund ......................................... NR/NR 25,000 167,178 215,625
---------- ----------
TOTAL INVESTMENTS (98.02%) ...................................... $73,293,808* $73,595,588
=========== ===========
CASH AND OTHER ASSETS, LESS LIABILITIES (1.98%)................. 1,487,592
------------
NET ASSETS (100.00%)............................................. $75,083,180
============
</TABLE>
* Also the cost for Federal income tax purposes. The aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost was $2,758,448, and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value was
$2,456,668.
See notes to financial statements.
4
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
June 30, 1996
<TABLE>
<S> <C>
Assets:
Investments in securities at value (identified cost $73,293,808) (Note 1)..................... $73,595,588
Cash.......................................................................................... 1,465,173
Interest receivable........................................................................... 1,507,707
Dividends receivable.......................................................................... 1,750
Prepaid expenses.............................................................................. 11,300
-----------
TOTAL ASSETS............................................................................... 76,581,518
-----------
Liabilities:
Dividends payable............................................................................. 1,432,571
Accrued expenses payable...................................................................... 65,767
-----------
TOTAL LIABILITIES.......................................................................... 1,498,338
-----------
Net Assets: (equivalent to $20.44 per share based on 3,673,258 shares of capital
stock outstanding)............................................................................ $75,083,180
===========
NET ASSETS consisted of:
Capital paid-in............................................................................... $76,198,060
Distributions in excess of net investment income.............................................. (1,474,151)
Accumulated net realized gain................................................................. 57,491
Net unrealized appreciation of investments.................................................... 301,780
-----------
$75,083,180
===========
</TABLE>
STATEMENT OF OPERATIONS (unaudited)
For the three months ended June 30, 1996
<TABLE>
Investment Income:
<S> <C> <C>
Interest..................................................................... $1,545,940
Dividends.................................................................... 5,250
-----------
Total Investment Income .................................................. 1,551,190
-----------
Expenses:
Investment advisory fees (Note 4)............................................ $107,774
Transfer agent fees.......................................................... 13,464
Insurance.................................................................... 3,224
Directors' fees and expenses................................................. 6,731
Audit fees................................................................... 6,357
State and local taxes........................................................ 5,360
Legal fees and expenses...................................................... 2,493
Reports to shareholders...................................................... 4,861
Custodian fees............................................................... 1,048
Miscellaneous................................................................ 10,779
--------
Total Expenses............................................................ 162,091
-----------
Net Investment Income ................................................. 1,389,099
-----------
Realized and unrealized gain (loss) on investments (Note 1):
Net realized gain from security transactions................................. 57,491
Unrealized appreciation of investments:
Beginning of period....................................................... 1,483,373
End of period............................................................. 301,780
--------
Change in unrealized appreciation of investments....................... (1,181,593)
-----------
Net realized and unrealized loss on investments..................... (1,124,102)
-----------
Net increase in net assets resulting from operations................ $264,997
===========
</TABLE>
See notes to financial statements.
5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1996 Year Ended
(unaudited) March 31, 1996
------------------ --------------
Increase (decrease) in net assets:
<S> <C> <C>
Operations:
Net investment income........................................................ $1,389,099 $5,801,610
Net realized gain from security transactions (Note 2)........................ 57,491 1,176,590
Change in unrealized appreciation (depreciation) of investments.............. (1,181,593) 1,044,839
---------- ---------
Net increase in net assets resulting from operations......................... 264,997 8,023,039
---------- ---------
Dividends to shareholders from net investment income............................ (1,389,099) (5,801,610)
Dividends to shareholders in excess of net investment income.................... (1,474,151) 0
Dividends to shareholders from net realized gains............................... 0 (220,972)
Distributions to shareholders from return of capital............................ 0 (127,447)
---------- ---------
(2,863,250) (6,150,029)
---------- ---------
Capital share transactions:
Net asset value of shares issued to shareholders in reinvestment of dividends
from net investment income (Note 5)....................................... 100,233 324,089
---------- ---------
Increase (decrease) in net assets............................................ (2,498,020) 2,197,099
Net Assets:
Beginning of period.......................................................... 77,581,200 75,384,101
---------- ---------
End of period................................................................ $75,083,180 $77,581,200
=========== ===========
</TABLE>
HOW TO ENROLL IN THE DIVIDEND REINVESTMENT PLAN
1838 Bond-Debenture Trading Fund (the "Fund") has established a plan for the
automatic investment of dividends and distributions which all shareholders of
record are eligible to join. The method by which shares are obtained is
explained on page 10. The Fund has appointed First Chicago Trust Company of New
York to act as the Agent of each shareholder electing to participate in the
plan. Information and application forms are available from First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Three Months Ended Year Ended March 31,
June 30, 1996 ------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period........... $21.15 $20.64 $21.45 $22.27 $21.39 $20.27
------ ------ ------ ------ ------ ------
Net investment income....................... 0.38 1.58 1.58 1.61 1.68 1.83
Net realized and unrealized gain (loss) on
investments.............................. (0.31) 0.61 (0.67) (0.68) 1.36 1.12
------ ------ ------ ------ ------ ------
Total from investment operations............... 0.07 2.19 0.91 0.93 3.04 2.95
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income........ (0.38) (1.58) (1.58) (1.73) (1.84) (1.83)
Dividends in excess of net investment income (0.40) 0.00 (0.01) 0.00 0.00 0.00
Distributions from net realized gain........ 0.00 (0.06) 0.00 0.00 (0.32) 0.00
Distributions in excess of net realized gain 0.00 0.00 0.00 (0.02) 0.00 0.00
Distributions from return of capital........ 0.00 (0.04) (0.13) 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions............................ (0.78) (1.68) (1.72) (1.75) (2.16) (1.83)
------ ------ ------ ------ ------ ------
Net asset value, end of period................. $20.44 $21.15 $20.64 $21.45 $22.27 $21.39
====== ====== ====== ====== ====== ======
Per share market price, end of period.......... $20.13 $21.25 $20.13 $21.13 $24.75 $22.63
====== ====== ====== ====== ====== ======
Total Investment Return
Based on market value....................... (1.60)% 13.91% 3.41% (7.72)% 18.91% 14.41%
Ratios/Supplemental Data
Net assets, end of period (in 000's)........ $75,083 $77,581 $75,384 $78,120 $73,595 $56,163
Ratio of expenses to average net assets
(does not include loan interest expenses) 0.86%* 0.86% 0.86% 0.92% 0.91% 0.97%
Ratio of net investment income to average
net assets............................... 7.37%* 7.37% 7.83% 7.11% 7.95% 8.85%
Portfolio Turnover.......................... 25.73%* 43.25% 35.38% 18.91% 68.56% 73.11%
Number of shares outstanding at end of
period (in 000's)........................... 3,673 3,668 3,653 3,642 3,304 2,626
Amount of bank loans outstanding at end
of period (in 000's)........................ $0 $0 $0 $0 $0 $1,679
Average amount of bank loans outstanding
during the period (in 000's)................ $0 $0 $0 $0 $46 $299
Amount of maximum month-end bank loans
during the period (in 000's)................ $0 $0 $0 $0 $0 $2,171
Average amount of bank loans per share
during the period........................... $0.00 $0.00 $0.00 $0.00 $0.01 $0.11
Weighted average interest rate of bank loans
during the period........................... 0.00% 0.00% 0.00% 0.00% 6.31% 5.42%
</TABLE>
*Annualized
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
Note 1 -- Significant Accounting Policies -- The 1838 Bond-Debenture Trading
Fund ("the Fund") is registered under the Investment Company Act of 1940, as
amended, as a diversified closed-end management investment company. The
following is a summary of significant accounting policies consistently followed
by the Fund in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. Security Valuation-- Securities which are primarily traded in the
over-the-counter market are valued at the mean of the bid prices on the last
business day of the period generally obtained from at least two dealers
regularly making a market in the security. Securities which are primarily
traded on a national securities exchange are valued at the last reported
sales price. The Fund believes that, because of the size of its position in
securities, the primary market for the listed debt securities in its
portfolio is the over-the-counter market. Short-term money market
instruments which have a maturity of more than 60 days are valued at the
mean bid prices for securities of a similar type, yield and maturity
obtained from at least two dealers. Short-term money market instruments
which have a maturity of 60 days or less are valued at amortized cost which
approximates market value. At June 30, 1996, the Fund had invested 97.73% of
its portfolio in long-term debt obligations of issuers engaged in electric
utilities, telephone utilities, financial, industrial and other
miscellaneous activities. The issuers' ability to meet these obligations may
be affected by economic developments in their respective industries.
B. Determination of Gains or Losses on Sale of Securities -- Gains or losses on
the sale of securities are calculated for accounting and tax purposes on the
identified cost basis.
C. Federal Income Taxes -- It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
D. Other -- Security transactions are accounted for on the date the securities
are purchased or sold. The Fund records interest income on the accrual
basis. In computing net investment income, the Fund does not amortize
premiums or accrue discounts on fixed income securities in the portfolio.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
E. Distributions to Shareholders -- Distributions of net investment income will
be made quarterly. Distributions of net capital gains realized will be made
annually. Income distributions and capital gain distributions are determined
in accordance with U.S. Federal Income Tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments in market discount and mortgage backed
securities.
F. Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Note 2 -- Portfolio Transactions -- The following is a summary of the security
transactions for the three months ended June 30, 1996:
Proceeds
Cost of from Sales
Purchases or Maturities
--------- -------------
Long Term Debt Securities................ $5,049,663 $4,534,385
Other Securities......................... $1,430,000 $1,430,000
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) - continued
Note 3 -- Capital Stock-- At June 30, 1996, there were 10,000,000 shares of
capital stock ($1.00 par value) authorized.
Note 4 -- Investment Advisory Contract and Payments to Affiliated Persons --
Under the terms of the current contract with 1838 Investment Advisors, L.P.,
advisory fees are paid monthly to the Investment Advisor at an annual rate of
5/8 of 1% on the first $40 million of the Fund's month end net assets and 1/2 of
1% on the excess.
Certain directors and officers of the Fund are also directors, officers and/or
employees of the Investment Advisor or its corporate general partner, 1838
Investment Advisors, Inc. None of the directors so affiliated receives
compensation for his services as a director of the Fund. Similarly, none of the
Fund's officers receives compensation from the Fund.
Note 5 -- Dividend and Distribution Reinvestments -- In accordance with the
terms of the Automatic Dividend Investment Plan, for shareholders who so elect,
dividends and distributions are made in the form of previously unissued Fund
shares at net asset value if on the Friday preceding the payment date (the
"Valuation Date") the closing New York Stock Exchange price per share, plus the
brokerage commisions applicable to one such share, equals or exceeds the net
asset value per share, however, if the net asset value is less than 95% of the
market price on the Valuation Date, the shares issued will be valued at 95% of
the market price. If the net asset value per share exceeds market price plus
commissions, the dividend or distribution proceeds are used to purchase Fund
shares on the open market for participants in the Plan. During the three months
ended June 30, 1996, the Fund issued 4,851 shares under this Plan.
9
<PAGE>
DIVIDEND REINVESTMENT PLAN
1838 Bond-Debenture Tradincy Fund (the "Fund") has established a plan for the
automatic investment of dividends and distributions (the "Plan" ) pursuant to
which dividends and capital gain distributions to shareholders will be paid in
or reinvested in additional shares of the Fund. All shareholders of record are
eligible to join the Plan. First Chicago Trust Company of New York acts as agent
(the "Agent") for participants under the Plan.
Shareholders whose shares are registered in their own names may elect to
participate in the Plan by completing an authorization form and returning it to
the Agent. Shareholders whose shares are held in the name of a broker or nominee
should contact such broker or nominee to determine whether or how they may
participate in the Plan.
Dividends and distributions are reinvested under the Plan as follows. If the
market price per share on the Friday before the payment date for the dividend or
distribution (the "Valuation Date"), plus the brokerage commisions applicable to
one such share, equals or exceeds the net asset value per share on that date,
the Fund will issue new shares to participants valued at the net asset value or,
if the net asset value is less than 95% of the market price on the Valuation
Date, then valued at 95% of the market price. If net asset value per share
on the Valuation Date exceeds the market price per share on that date, plus the
brokerage comrnisions applicable to one such share, the Agent will buy shares on
the open market, on the New York Stock Exchange, for the participants'
accounts. If, before the Agent has completed its purchases, the market price
exceeds the net asset value of shares, the average per share purchase price paid
by the Agent may exceed the net asset value of shares, resulting in the
acquisition of fewer shares than if the dividend or distribution has been paid
in shares issued by the Fund at net asset value.
There is no charge to participants for reinvesting dividends or distributions
payable in either shares or cash. The Agent's fees for handling of reinvestment
of such dividends and distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares issued directly by the Fund as a result
of dividends or distributions payable either in shares or cash. However, each
participant will be charged by the Agent a pro rata share of brokerage
commissions incurred with respect to the Agent's open market purchases in
connection with the reinvestment of dividends or distributions payable only in
cash.
For purposes of determining the number of shares to be distributed under the
Plan, the net asset value is computed on the Valuation Date and compared to the
market value of such shares on such date. The Plan may be terminated by a
participant by delivery of written notice of termination to the Agent at the
address shown below. Upon termination, the Agent will cause a certificate or
certificates for the full shares held for a participant under the Plan and a
check for any fractional shares to be delivered to the former participant.
Distributions of investment company taxable income that are invested in
additional shares generally are taxable to shareholders as ordinary income. A
capital gain distribution that is reinvested in shares is taxable to
shareholders as long-term capital gain, regardless of the length of time a
shareholder has held the shares or whether such gain was realized by the Fund
before the shareholder acquired such shares and was reflected in the price paid
for the shares.
Plan information and authorization forms are available from First Chicago Trust
Company of New York, P.O, Box 2500, Jersey City, New Jersey, 07303-2500.
HOW TO GET ASSISTANCE WITH SHARE TRANSFER OR DIVIDENDS
Contact Your Transfer Agent, First Chicago Trust Company of New York,
P.O. Box 2500, Jersey City, New Jersey 07303-2500, or call 201-324-0498
10
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DIRECTORS
----------
W. THACHER BROWN
JOHN GILRAY CHRISTY
JOHN H. DONALDSON
MORRIS LLOYD, JR.
J. LAWRENCE SHANE
OFFICERS
----------
JOHN H. DONALDSON
PRESIDENT
KEVIN D. BARRY
VICE PRESIDENT
ANNA M. BENCROWSKY
VICE PRESIDENT
AND SECRETARY
MARCIA ZERCOE
VICE PRESIDENT
INVESTMENT ADVISOR
-------------
1838 INVESMENT ADVISORS, L.P.
FIVE RADNOR CORPORATE CENTER, SUITE 320
100 MATSONFORD ROAD
RADNOR, PA 19087
CUSTODIAN AND
TRANSFER AGENT
-------------
FIRST CHICAGO TRUST COMPANY OF NEW YORK
P.O. BOX 2500
JERSEY CITY, NJ 07303-2500
COUNSEL
-------------
STRADLEY, RONON, STEVES & YOUNG, LLP
2600 ONE COMMERCE SQUARE
PHILADELPHIA, PA 19103
AUDITORS
-------------
COOPERS & LYBRAND L.L.P.
2400 ELEVEN PENN CENTER
PHILADELPHIA, PA 19103
